Govt unveils $42b stimulus

3 February 2009 — 11:41am

Low and middle-income earners will receive a $950 bonus after the Rudd Government announced it would spend an extra $42 billion in its latest bid to defy the economic gravity that is dragging down economies around the world.

The spending package, over the next four years, includes $28.8 billion for infrastructure, schools and housing, as well as $12.7 billion cash payments. The payments include one-off bonus payments of $950 each for low- and middle-income households and individuals through five bonuses, to be paid in March, 2009

The Government also halved its 2008/09 growth forecast for the economy to 1% from a November forecast of 2%.

The extra spending was contained in a package of measures announced today by Prime Minister Kevin Rudd and Treasurer Wayne Swan, as the Government battles to adjust its policies and forecasts fast enough to cope with the rapidly deteriorating global economy. It brings the total stimulus efforts by the Government to $88.7 billion.

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''The Government will move heaven and earth to reduce the impact of the global recession on Australia,'' Mr Rudd said.

Opposition Leader Malcolm Turnbull, speaking on Sky News, pledged to work with the Government on the stimulus budget but said the Opposition would go through the spending proposals ''line by line'' in the coming days.

The "substantial" package ''will be felt in the short term,'' said ANZ economist Katie Dean. "It should provide a significant boost to growth in the March and June quarters" and "may delay a technical recession''.

Nonetheless, the scale of the global slowdown will likely overpower the Government's best efforts to prevent the recession from taking hold here, she said.

''A lot of the shock has already flowed into the economy and it will be very difficult to for Government to avert a very sharp downturn in business investment.''

Today's additional outlays are expected to support about 90,000 jobs over the next two years, the Government said.

''Nobody likes being in deficit. This isn't a question of choice: it's what we're being required to do.''

Calling the global financial crisis ''a crisis not of Australia's making,'' Mr Rudd flagged an "exit strategy" to running public debts and said economic growth should eventually return the budget to surplus ''over time''.

The Government would keep future discretionary spending to 2% in coming years in an effort to ease debt.

However, he warned, "no one knows how long and deep this part of the economic cycle will be''.

Earlier today, business groups called for a stimulus plan of at least $25 billion.

The pull from the deepest global recession since the 1940s is too much

The announcement came just hours before the Reserve Bank did its bit to help spark a revival in confidence among consumers and businesses alike. The bank's board cut its key interest rate by 100 basis points, or 1 full percentage point, to 3.25%.

The additional spending - coming on top of other measures including October's $10.4 billion stimulus plan - means the Federal budget faces years of deficits. Canberra has not clocked up a budget deficit since 1997-98.

Mr Rudd said the Government now predicts its deficit for the year to June 30 will total $22.5 billion alone. That shortfall compares with projections of a surplus of $5.4 billion as recently as November and a massive $21.7 billion surplus when it announced its budget last May.

The deficit will expand further to $30 billion in the following two years.

Yesterday, Mr Rudd said the global financial crisis would punch a $115 billion hole in the Government's expected revenues between this year and 2011-12, with taxes from businesses set to shrink by $76 billion alone as profits wither.

That revenue drop prompted ANZ economist Katie Dean to forecast this year's Federal deficit would come in at between $10-15 billion (about 1% of gross domestic product), rising to as much as $35 billion next fiscal year.

''The Government is doing what they can, given their finances, but the pull from not only dysfunctional credit markets and but deepest global recession since the 1940s, is too much,'' ANZ's Dean said.

Other countries are preparing big spending programs in a bid to reverse a slowdown that is now dogging virtually every economy.

The new US administration led by President Barack Obama is seeking Congressional support for a stimulus package of at least $US819 billion ($1.3 trillion), or equivalent to about 5.8% of the country's GDP.

Asia, home to six of Australia's 10 largest trading partners, has seen a sharp slowdown in growth in the past six months, triggering big falls in prices of many of Australia's main exports with more to come.

''The global economic outlook has drastically deteriorated since Mid-Year Economic and Fiscal Outlook 2008-09," today's report by the Government stated.

"In the wake of the intensification of the financial crisis in September 2008, confidence has fallen and the inter-connected impacts of declining orders, production and employment have combined to produce the most extraordinarily synchronised slump in global economic activity in decades."

"The December quarter 2008 is likely to have recorded the weakest quarterly global GDP performance since World War II."

Apart from halving this year's GDP growth rate for Australia, the Government today predicted growth would slow further to 0.75% next fiscal year.

Those tallies compare with respective forecasts of 2% and 2.25% made by the Government in November.

More people are now expected to lose their jobs as the economic downturn savages business, with the unemployment rate now forecast to rise to 5.5% in 2008-09 and 7% in 2009-10.

In November, the Government had forecast respective jobless rates of 5% and 5.75%.

The unemployment rate was 4.5% in December.

The $12.7 billion cash payments will include one-off bonus payments of $950 each for low- and middle-income households and individuals through five bonuses to be paid in the next few weeks through either the Australian Tax Office or Centrelink.

It means 8.7 million workers earning $100,000 or less will receive a lump sum payment of $950 each from April.

About 1.5 million single-income families will also receive the payment, provided they receive Family Tax Benefit Part B, in the fortnight beginning March 11.

Farmers will also receive a $950 bonus payment, as will families eligible for FTB Part A who have a child at school. They will receive an immediate payment of $950 this week.

The Government will also provide a one-off $950 training and learning bonus for eligible students and people outside of the workforce returning to study to help with the costs of education and training.

The package, which is virtually a mini-budget in all but name, is the second major economic stimulus package announced by the Government since the $10.4 billion economic security strategy released in October.

It takes the total amount spent by the Government on stimulating the economy since September to $88.7 billion, including bank deposit guarantees, the car industry package, as well as investment in residential-backed mortgage securities, local government, infrastructure projects, and on the states through the Council of Australian Governments (COAG).

The statement said that while the nation was in a better position than most other countries to weather the global recession, Australia could no longer ''resist the pull of global economic forces''.

The infrastructure spending in this package involves a major roll-out of $890 million to fix accident black spots, install rail boom gates, repair regional roads and build community infrastructure such as libraries, town halls, community centres and sport centres.

Schools around Australia will benefit from $14.7 billion over three years to construct school halls, libraries, indoor sports facilities and performing arts centres.

The package includes funds of between $250,000 and $3 million for primary schools for capital expenditure projects and $1 billion for the construction of science and language laboratories in secondary schools, while all schools will be able to apply for extra funding of between $50,000 and $200,000 for minor maintenance and infrastructure.

Public and community housing will receive a $6 billion boost to allow for the construction of about 20,000 new homes to be completed by December 2010.

Small business also gets $2.7 billion in extra tax breaks aimed at supporting jobs.

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This means, for example, a business which buys a $2000 computer by the end of June this year will receive a $600 additional deduction while a business which buys a $60,000 backhoe before the end of June will receive an extra $18,000 deduction.

The Government will also provide free ceiling insulation to 2.7 million homes to improve energy efficiency by increasing the solar how water rebate from $1000 to $1600 from Tuesday and the low emissions plan for renters rebate will double to $1000.